Notes on American life from American history.

Did “Consumerism” Blow Up the Economy?

Commentators trying to make sense of the economic chaos that hit the nation in the last couple of years have wagged their fingers in many directions – at banks, regulators, lenders, and so on.

But one culprit in everyone’s sights is the American consumer. Americans are in good measure to blame, we hear, because in the last couple of decades they became reckless spendthrifts, careening into credit-card debt, living far above their means – and then crashing and burning.

Could be. But overspending is nothing new. Indeed, it’s probably been less true recently than it used to be.

Truth is, Americans have been spending above their means since Day One. (An excellent book on the subject is Calder’s Financing the American Dream.)

In the colonial era, for example, Americans lusted after bright ribbons, mantle clocks, fussy clothes, family portraits by traveling artists, and especially, tea. Tea, tea pots, tea cups – and sugar to sweeten the brew – were luxuries in the colonial period. But many poor families (and most families were poor) sacrificed for that luxury. In 1774, at least two of every five poor households had tea services. As one historian put it, pungently: “For the pleasure of taking tea in the parlor, more than a few families were content to continue pissing in the barn.”[1]

The most famous over-spenders were the Founding Fathers – Robert Morris languishing in debtors’ prison, and Thomas Jefferson dying in debt, for example. A number of Jefferson’s fellow Virginia gentry scooted off to the western territories when the American Revolution ended because their London creditors were coming to collect the money they owed.

Complaints that Americans spent too much continued on into the 19th century. For example: “There are worlds of money wasted . . . in getting things that nobody wants, and nobody cares for after they are got,” moaned Harriet Beecher Stowe about Christmas shopping, 1850 [2].

And into the twentieth century. The great intellectual Daniel Bell wrote in 1976 that “the single greatest engine in the destruction of the Protestant ethic [of self-discipline] was the invention of the installment plan. . . . With credit cards one could indulge in instant gratification” [3]. And so on.

In the last couple of decades, critics have pounced on the statistics showing that contemporary Americans were getting into greater and greater debt. They, too, blamed the American psyche – the desire to keep up with Joneses (a phrase that actually dates from the 1910s), to have everything new all the time, just put it on the card, the devil take the consequences. Americans seemingly succumbed to the disease of consumerism.

But the numerical evidence doesn’t support that diagnosis, either. Some numbers suggest that average Americans around 2000 probably carried less debt relative to their assets than average Americans did a century ago. We forget that many Americans in earlier times were in heavy, chronic, and sometimes never-surmounted debt – farmers for the expenses of planting and harvesting, industrial workers to company stores, immigrants paying off loans for ship passage, and so forth – not to mention the millions who bought wedding dresses, bicycles, or pianos on lay-away plans.

Moreover, a close look at recent history shows that the run-up in borrowing in the last period was not a result of Americans going wild with credit cards, but of Americans going all-in on houses. (I discuss this in Made in America, but wanted a nice picture from the Federal Reserve’s Survey of Consumer Finances. And, no surprise, Nate Silver of fivethirtyeight.com beat me to it. Here it is.)

We can see that credit-card debt formed a tiny part of total debt growth. Even that small fraction exaggerates the image of shoppers-gone-gaga, because during this period more Americans started using their cards for everyday purchases like groceries and gas.

Borrowing money for homes entails – and this is critical – much more than consumption. Homes are Americans’ main financial investment vehicle. And Americans got a far better return on their money in the 1980s and 1990s by putting it in a home than by putting it in a bank or stocks. Even though we don’t officially count mortgages as investments like, say, buying T-bills, they were most Americans’ major exercise in capitalism. Much of that investment went belly-up in the last couple of years – but not because Americans were being spendthrifts.

The moral is that we can certainly morally object to conspicuous consumption – that’s an American tradition. But it cannot explain the crisis we’re in, since we’ve been overspending for centuries. Let’s wag our fingers elsewhere.

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* "Masterful and rewarding . . . exactly the sort of grand and controversial narrative, exactly the bold test of old assumptions, that is needed to keep the study of American history alive and honest" -- Molly Worthen, New Republic Online
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